DCF Model Review Checklist

Checklist • Beginner • 3 min read

Audience: Model Developers • Equity Research • Investment Committees • Advisory Firms
Last Reviewed: July 2026
Updated: Version 1.0

Executive Summary

This checklist is a general-purpose self-review tool for a model builder or reviewer to work through before a DCF model is submitted for investment committee review, lender due diligence, or independent audit. It covers construction quality, terminal value and discount rate reasonableness, sensitivity and scenario disclosure, and triangulation against other valuation methods. It complements, and is distinct from, the DCF Model Audit Checklist, which maps specific structural checks onto FMAE's testable R001-R026 rule taxonomy for independent audit purposes.

Key Takeaways

✓ This checklist is a general self-review tool for a model builder, distinct from the rule-mapped DCF Model Audit Checklist used for independent structural audit.
✓ It covers construction quality, terminal value and discount rate reasonableness, disclosure completeness, and triangulation, not just formula-level structural mechanics.
✓ Every item is drawn directly from the construction and disclosure disciplines set out across this Knowledge Centre's DCF technical guides.
✓ Working through this checklist before submission catches the same categories of error the DCF Model Audit Checklist tests for, at an earlier and less costly stage.

Purpose¶

This is a general-purpose, self-review checklist for a DCF model builder or reviewer to work through before submission — distinct from the DCF Model Audit Checklist, which maps specific structural checks onto FMAE's testable rule taxonomy for independent audit purposes. Use this checklist during construction and before submission; use the audit checklist for independent, formula-level verification afterward.

1. Cash Flow Basis¶

[ ] The cash flow basis (FCFF or FCFE) is stated explicitly at the top of the model or output summary
[ ] Every non-cash add-back, capex, and working capital line in the free cash flow build links to its source schedule elsewhere in the model
[ ] Where both the NOPAT-based and CFO-based FCFF builds are available, they have been reconciled

2. Discount Rate¶

[ ] The discount rate basis matches the cash flow basis (WACC for FCFF, cost of equity for FCFE)
[ ] Every WACC input — risk-free rate, beta, equity risk premium, cost of debt, tax rate, capital structure weights — is documented with its source and date
[ ] Capital structure weights are based on market or target values, not book values
[ ] Any WACC circularity has been either eliminated (fixed target weights) or controlled with documented convergence settings

3. Terminal Value¶

[ ] The terminal-year cash flow used is normalized, with any one-off item removed
[ ] The perpetuity growth rate, if used, is meaningfully below the discount rate and benchmarked against long-run GDP or inflation
[ ] The exit multiple, if used, is sourced from current, comparable trading or transaction data
[ ] The alternate terminal value method has been calculated as a cross-check, and any material divergence explained
[ ] Terminal value's share of total enterprise value has been calculated and is ready to disclose

4. Enterprise-to-Equity Bridge (FCFF-based valuations only)¶

[ ] Net debt, minority interests, and preferred stock are deducted, each sourced from the balance sheet at the valuation date
[ ] Non-operating assets are added where applicable, with their source documented
[ ] Diluted share count is used for the per-share calculation

5. Sensitivity, Scenario, and Tornado Disclosure¶

[ ] A two-way sensitivity table exists for the discount rate against the terminal growth rate or exit multiple
[ ] Where relevant, a base/upside/downside scenario summary is included, with each scenario's assumption combination internally coherent
[ ] Where prioritizing diligence effort is useful, a tornado chart ranks the key assumptions by individual impact

6. Triangulation¶

[ ] The DCF conclusion is presented alongside, not instead of, a relative valuation (trading comparables) cross-check where comparable companies exist
[ ] Any material divergence between the DCF and relative valuation conclusions is addressed, not left unremarked

7. Documentation and Presentation¶

[ ] Every key assumption (discount rate components, growth rate, exit multiple) is traceable to a labelled, sourced assumption cell
[ ] The output clearly distinguishes enterprise value from equity value from value per share
[ ] The model's revision history and version are documented

Continue Reading¶

Prerequisites¶

Discounted Cash Flow (DCF) Valuation — the parent pillar

DCF Model Audit Checklist

How OXXON tests thisRun a free structural check with FMAE

Frequently Asked Questions

What is the difference between this checklist and the DCF Model Audit Checklist?

This checklist is a general, practitioner-facing self-review tool for a model builder to work through before submission. The DCF Model Audit Checklist maps specific structural checks onto FMAE's existing R001-R026 rule taxonomy for independent, testable audit purposes. Use this one first, during construction; use the audit checklist for independent verification afterward.

Who should use this checklist?

Model builders self-reviewing before submission, advisory firms preparing a DCF for a client deliverable, and investment committee secretariats confirming a submitted model addresses the basics before scheduling a full independent review.

Does completing this checklist replace an independent audit?

No. Self-review catches many errors early and cheaply, but an independent structural audit — addressed on the DCF Model Audit Checklist — tests the model's actual formulas rather than relying on the builder's own self-assessment.

Discounted Cash Flow (DCF) Valuation

Discounted cash flow (DCF) valuation values a business, project, or asset as the present value of the cash flows it is expected to generate in the future. It is the most theoretically grounded of the major valuation methodologies, resting directly on the principle that a dollar of cash flow is worth more today than the same dollar received in the future, and that value is created when future cash flows exceed what capital providers require as compensation for the time value of money and risk. This page is the hub for the Knowledge Centre's DCF content: what DCF is and why it works, how free cash flow and discount rates are built, how terminal value is calculated and stress-tested, the method variants practitioners choose between, and — distinctively — how DCF failure modes map onto FMAE's existing structural audit rule taxonomy, since no generic valuation resource ties DCF mechanics to a named, testable audit standard.

DCF Model Audit Checklist

This checklist sets out the structural checks a DCF model should pass before being relied upon for an investment committee submission, lender review, or transaction decision. Each check maps to one or more of FMAE's existing 26 structural audit rules, distinguishing this checklist from a generic modelling best-practice list: every item here is something a deterministic structural audit engine can actually test, not a matter of methodology judgement.

DCF Valuation Best Practices

This guide synthesizes the construction and disclosure disciplines addressed throughout this Knowledge Centre's DCF coverage into a single, stage-by-stage best-practice reference: how to build free cash flow and the discount rate so every input is traceable, how to calculate and cross-check terminal value, how to disclose sensitivity so the concentration of value in a small number of assumptions is visible, and how to triangulate the DCF conclusion against other valuation methods rather than presenting it in isolation.

Common Mistakes in DCF Valuation

DCF valuation errors fall into recognizable categories: conceptual confusion between enterprise and equity value, accounting errors in the free cash flow build, Excel and modelling errors that a structural audit can detect directly, judgement errors in the terminal value and discount rate assumptions, and presentation errors that omit the sensitivity disclosure a DCF conclusion requires. This guide catalogs each category with its specific failure modes, cross-referenced to the technical guide addressing the correct construction and, where applicable, the FMAE structural rule that detects the modelling-layer version of the error.